5 Financial Considerations When Taking Care of Your Aging Parents

[Editor’s Note: For today’s WCI Network post we hear from Passive Income, MD about how he has approached the problem of making sure his parents are taken care of financially as they get older. If you think there are vast differences between the financial situation of one doctor compared to another, those pale in comparison to the differences in parental situations. Some doctors have parents that are completely dependent on them, while other expect substantial inheritances. Either way, you will likely be called on to help in some manner. Hopefully this post will help you be prepared. ]

As I’ve aged and moved into different stages of life, I’ve found that each one comes with its own set of new financial responsibilities and issues. My wife and I got married during residency and we started dealing with how to manage finances as a couple. We had a child two years out of fellowship and so our attention started turning to how we were going to provide for our children both now and in the future. The one area we didn’t spend too much time thinking about or devoting energy to was how we were going to take care of our aging parents financially.

In an ideal world, everything would be all packaged up and ready for you when your parents need your help. However, we know that will definitely not be the case for most people. My father recently retired and as a family, we only started having conversations about my parents’ financial situation in the months before my father retired.

My father was the primary breadwinner and my mother stayed home to take care of the family. Honestly, my parents and I never talked about finances growing up. It just wasn’t something discussed in our household. So that first conversation we had about money was a bit awkward.

As the oldest child in the family, I’ve always felt a sense of duty to make sure my parents are well taken care of and will enjoy a nice retirement. So I simply started the conversation by sharing a bit about my plans for retirement and asked them about their plans. Turns out, they had thought about it quite a bit, but some of the details weren’t quite hammered out.

We had several conversations about this subject over the following months. Each time we ran into new issues to be tackled. Perhaps you’re in a similar place or will be soon, so I figured I’d share five major financial considerations that we discussed over the course of these conversations (that honestly are still going on today).

1) Income During Retirement and Budgeting

The biggest question most of us have about retirement is, “Do we have enough saved once we stop working?” If you’re thinking of retiring early, that calculation can be even more difficult. My father is 69 and my mother 67. Based on Social Security Administration info, the average lifespan of a man who has reached 65 is around 84 and for a woman who’s reached 65 is almost 87. However, we’d like to be conservative and plan for them to live for the next 25-30 years.

Personally, I would figure a way to support them fully if needed if the money ran out. However, both my parents and I want to plan in a way so that support isn’t needed. They live a pretty simple life and aren’t into luxury goods or expensive vacations. They mostly just want to go to places and visit old friends.

I asked them what their expected income in retirement was and they didn’t quite have a number. They figured they’d be okay and expected to just see what it was when they got there. Of course, I wasn’t satisfied with that, so I decided to take a deeper dive.

In brief, their assets and sources of income are as follows:

Social Security

They’re of a generation where Social Security will most definitely be there for them during retirement. Unfortunately the same can’t be said for my generation. I found out my mother was currently taking social security payments and my father, as the primary, delayed it as long as possible and would start taking it at 70 years old.

Retirement Accounts

My father had a 401k from his current employer and an IRA that he had started previously as well. He wasn’t very diligent about making contributions earlier on his career but at least he was later in his career.

Real Estate

Parents own a home with some equity in it.

Cash

They had some cash in their account from the sale of a previous home.

Based on these assets, we did a calculation of how much income they would be receiving once full Social Security benefits kicked in and assuming that we’d cash out 4% per year from their retirement accounts (according to the 4% rule). The number was slightly better than their expected budget based on current expenses. In the name of being conservative, we came to a decision that it would be nice to have a little more in the way of cash flow per month that we accomplished by buying some rental property. More on that later…

2) Healthcare

Since my father would no longer be working, what kind of medical insurance would they have after losing their employer’s plan? At his age, he qualified for Medicare but only in looking into it further did I recognize there were multiple tiers, levels, and premiums. I was totally ignorant and assumed Medicare was pretty much one uniform plan. Turns out not to be the case.

So in order to understand their situation a bit, I had to take somewhat of a crash course on Medicare. What that really means is that I googled the term for as much info as I could find. Turns out that my parents have Medicare Supplemental Insurance F which is widely considered the most comprehensive of the Medicare Gap coverages. It covers the deductibles of Medicare A & B, multiple extra charges, amongst other benefits. Sure it was a little more expensive, but they felt worth it considering some things in our family history.

I asked if they had long-term care insurance. I didn’t know much about it except that I had been asked to buy it in the past by insurance agents and remember it seemed quite expensive.

For those not familiar with the term, long-term care is help that is needed by people with chronic diseases and disabilities. This help can range from medical to non-medical, for example, daily life activities like bathing, eating, and dressing, as well as skilled care by nurses or other professionals.

According to the department of health and human services, someone turning age 65 today has ~70% chance of needing some type of long-term care services. However, there are reports that say for those aged 55-60, only 5% of them have long-term care coverage. Why? Because of the cost. The cost of coverage depends on what kind of coverage you sign up for but it can be $2000-3000 per year making it difficult for anyone to purchase.

My father never got it and we decided not to add it at the time. However, he recently has been dealing with an issue where we could definitely use the coverage and he is now paying out of pocket for a good portion of it. I’ve been amazed how high the costs are for this type of care. The cost for an in-house caregiver from an agency can easily be $25 per hour. Imagine for 24 hours coverage, that’s $600 per day, and for one week it’s $4200. Yikes! Yes it’s after the fact and there’s nothing we can do about it now, but we regret not getting long-term care insurance.

3) Estate Planning

My wife and I recently set up a revocable living trust. It doesn’t offer any asset protection but it spells out exactly how we want our assets to be divided if something happens to us.

My parents created a will but had no interest in spending the additional funds for a living trust. The major difference between a living trust and a will is that you still need to undergo probate with a will. Probate is a court-supervised process that helps the estate to get passed along according to the will.

It is also important to name a power of attorney for financial and healthcare issues. When you form a living trust or will, these issues are usually addressed. Thankfully my parents had already considered this issue and named a power of attorney in certain cases.

4) Access to Financial Information

Since they were giving me power of attorney, would I know how to access their records or where to find them if needed? Would I know how to handle their finances, pay their bills, or deal with their taxes?

Fortunately, my parents are at a place where they can handle their finances on their own. However, I’m seeing my older relatives start to have problems with that very issue. It just made sense to discuss the issue before we were forced to.

So at the very least, we decided to organize some important papers and files and put them in a secure location with password protection. They also added my name to some accounts so that if I needed to get access, I could.

5) New Investments

After crunching some numbers as mentioned above, we determined it would be nice to have a few more cash-flowing assets to pad their retirement income. They already had some cash from the sale of their previous home and so we decided to buy some rental real estate.

In fact, I helped them buy three rental properties at the end of last year. We bought the properties with different goals in mind. One was a multifamily property that would be expected to cash flow a good amount in a few years and two properties that would begin cash-flowing a few thousand dollars immediately.

We also decided that in the future, there was no need to take too many other further risks. We decided to not pursue any other higher yield investments and keep the portfolio well-diversified between stocks and bonds.

Final Thoughts

The only thing that you can expect out of life is that unexpected things will happen. Before you know it, your parents may be relying on you for physical and financial help. In a way, it’s actually nice to feel like I can contribute to their well-being. They’ve done so much to take care of me, it’s nice to return the favor.

If you’re getting close to that stage, it may be worthwhile to start thinking about having this discussion. I’m glad we at least talked about it before he retired. It really opened my eyes to true considerations during retirement. It’s one thing to talk about early retirement, it’s another thing altogether to talk through all the issues with someone going through it.

Now I know what you might be thinking – I’ve only mentioned my parents and not my wife’s. That’s true. To be honest, we haven’t really had that discussion with her parents yet and it’s something we need to do and have been meaning to do. Her parents have always been very savvy with finances and so we haven’t quite felt as much urgency. At least it should be a little more of an informed discussion having gone through it once.

If there was anything I’d do differently it’s that I would’ve talked about finances in retirement with my family earlier. So do it sooner rather than later if you can. I know you’ll be happy that you did.

What do you think? Have you had these types of talks with your family? Any other major financial conditions that should be mentioned? How much help do you provide your parents? Comment below!

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16 comments

I think it is also a very cultural thing. Asian people (and as an Indian myself I am included) have very strong sense of duty to be reposnsible for the care of their parents as they age. It is not uncommon to see multiple generations living under one roof in the Asian community.

There are a lot of factors that effect how much of a financial drain supporting a parent can be. You have won the lottery if your parents are well off and don’t require financial support and may even be blessed with an inheritance. On the opposite spectrum you may have parents who have never saved a dollar their whole life and constantly live above their means. This situation can create a huge financial burden if you let it (they may even try to talk you into maintaining their lifestyle as they have gotten used to it). There have been legal cases where you can be hit with your parents debt they have accumulated in nursing facilities (in Pennsylvania for example) which I find absolutely ridiculous (the circumstances are rare but it is in the legal books and can be used against you).

My Mom is 89 and I’ helping take care of her with my brother. She’s doing ok for now, but I’ve considered all of these things. Having access to her financial information is a big one. She’s very close-guard about money since my family never had much and getting her open up and give me access to all of her account #’s has been challenging. She just shuts down when I try. It’s a work in progress….

My recently widowed MIL has of course reached out to my spouse, her only child, and to me the family money guru. Spouse had a rough awakening to the importance of all this stuff as he helped her through probate and everything else. I got a few worried phone calls on the order of “how do we have our cars titled?” and “do you know where our wills are?” I had a head banging experience as I recognized that the financial practices of a child growing up hungry in WW2 Germany and now in her 70s are quite different from those of a younger long time WCI reader. (Stocks? Mutual funds? Are you kidding? At least they had IRAs and no gold bars buried in the back yard.)

Another sobering, sad, and valid issue is her anxiety over being cheated. When her son joked with her that she should help her granddaughter with the downpayment on that 20 something’s first home, MIL soberly said “I really wish you had asked me before you loaned her some of my money”. She had not understood that he had NOT done so. We have no plans to do anything with her money without first getting her permission. Sadly family members are the most likely to financially abuse the elderly so while we were somewhat hurt we only wish all elderly were safe to trust their money helpers, kin or not.

We also hope that a delightful neighbor couple who just moved in last year and now spend much more time with her than her son does (except when he’s in town every few months) are just kind saints; not some odd sort of predator, let alone not showing us up as lousy inattentive kids. And of course she worries more than we do that the cleaning lady is not a thief or that the yard man is overcharging (they did all this themselves before FIL died).

Needing her permission is occasionally maddening to me as I back away and recognize that the smartest way that I feel would work best for her is just not in her comfort zone, since my husband my parents and even my kids pretty much take my advice or let me run things money wise. We also have to decide, when we feel able to talk about it, when we should decide she is no longer capable. She had already been dismayed by FIL’s increasingly sizable donations to the church, feeling this might mean sacrifices of her comfort down the road by shrinking their retirement savings. My concerns are that she should move money from .1% savings into 2.5% CDs, as well as consider a will leaving something to the grandkids instead of son and then me. Hoping to point out the income bump from the CD move as we see what the various pensions add up for her each month.

The main lesson I get from the experience (aside from patience and silence) is that I will do my best to educate spouse about our finances. MIL was ill served by being so ignorant of their finances and is probably ill served by my distant, not fully informed advice and her son’s not fully educated assistance at his intermittent visits. I wish FIL had at least have gotten her able to use texting and email as he did.

I have thought about setting up a revocable trust but haven’t. I’m still not sure I need to. There are costs to set it up and then ongoing costs. There is paperwork to transfer assets into the trust. Then as I move or buy and sell assets it is one more layer of complexity. I thought I would set one up later in life when my buying and selling are slowed or done. Make sense? Am I missing something?

I would think asset protection would be the reason to set it up, but your description says, “it spells out exactly how we want our assets to be divided if something happens to us.” Couldn’t you do that with a simple will?

I agree with Wealthy Doc. Trusts can be complex and more trouble than they’re worth. As assets change or you move, the trust must be updated and frequently revisited. In addition, I dealt with a nightmare that was my parent’s trust – some land was in their trust and much more, including the land where the house was located, was not due to a county clerk recording error. I could go on…it was a 5 year nightmare. With this fresh in mind, we’ve decided not to create a trust. All of our assets are in mutual funds and each requires a designed beneficiary (which supersedes wills & trusts). That has 90% of our estate covered. Wife and I have only one child so we plan to sign a Transfer on Death deed for our home. This should cover everything except our vehicles.

Thanks to your comments, I read the V. link and them gave them a call. All of our individual taxable brokerage accounts have designated beneficiaries. Retirement accounts also. However, the joint taxable account cannot have beneficiaries. The only way a beneficiary can be designed w/o going through a will or trust is to wait until one spouse dies and then the surviving spouse can designate a beneficiary. As the V. link spells out, Transfer Upon Death plans can also be used on individual accounts.

I’m not far away from achieving side hustle millionaire status, whereas I can not only take care of my aging parents, but also help them pay off all existing debt and perhaps maybe, just maybe, buy them a new home in the near future.

Regarding the Social Security Administration life expectancy data, I would caution readers of this blog against using it for themselves or family members. Those who frequent this site are likely to live longer than those in the general population for several reasons (e.g. higher net worth, more health conscious, more long-term oriented).

Will reiterate the need for Power of Attorney prior to health issues. Very important.

One comment/question:
You stated, “Personally, I would figure a way to support them fully if needed if the money ran out.” What if you are not alive to “figure out a way to support them”? Just an additional wrinkle to think about.

Thanks for the post. Now I don’t feel so dumb for being a doctor and not understanding all of this sooner!

This year I have had the **pleasure** of taking over financial and health management duties for my 72 year old mother (with some long distance assistance from my brother). I think your points about long term care insurance and medicare are extremely important.

Regarding medicare, for example, I always believed that inpatient stays were 100% covered by medicare A up to 30 days. It turns out that specialists, anesthesiologists, and radiologists, etc charge additional fees to medicare B that are only covered 80%. So far, my mother has been charged and additional $1200 for her inpatient stay on top of her $1340 deductible for the year. I have gone back and forth with both medicare and the hospital (hours and hours on the phone and internet) to ensure that all these charges are legal….and they are. Additionally, her medicare B charges have risen significantly for the year due to her outpatient care needs (PT/OT/ST, doctor visits, followups, radiology studies, etc) and will result in additional thousands of dollars that she will pay out of pocket for the year.

During all of this I also discovered my mom was not signed up for a medicare D plan for help with medications or any other supplement plan for that matter. Yep…that’s an additional hundreds of dollars each month for medications on top of the other charges. Furthermore, since she did not enroll in a part D plan within the first few months of her initial medicare enrollment, the part D plan was significantly more expensive than it would have been if she had enrolled early.
Recognizing this a month ago, I helped enroll her in a medicare part D plan for 2019…only to have the bills from her hospitalization start rolling in the next week and realize I should have considered a medicare F plan (like the one your parents have) or some other more comprehensive supplement plan through an insurer (there are about as many plan types as there are letters in the alphabet). Although it may cost more monthly, it is a set cost as opposed to uncertain costs for unexpected problems that may arise. Presently, I am looking into other supplemental plans to enroll in for 2020 but I am fearful that, like medicare A, there will be significant uncovered services that will still result in large unexpected out of pocket costs….but at least I have 11 more months to learn before the next enrollment period!

In regard to long term care, this is another extremely high cost I am learning about on the fly. Following her hospitalization, she needed help in her apartment 24/7 for a while. This turned out to be 1) a logistical nightmare since it was very difficult to find people to cover such help on short notice (thanks to the hospital I work at telling me 48h before her discharge that this was the final recommendation of the therapists), so we had about 10 caregivers (yeah, that’s super safe, right?) in and out of her apartment over the course of 2 weeks!!!! 2) very expensive– since she did not qualify for nursing coverage this was all out of pocket at $15-30/h depending on who was there, which company we used, whether it was a holiday, night, weekend, etc. And this did not include actual help with bathing, distributing medications, etc because those are all nurse tasks according to the companies we hired! At this point she is paying about $15/h for 8h/day assistance, which still adds up to thousands of additional dollars monthly and I still have to put her pills in a box for her for the month, etc.

For her part, my mother did an excellent job of saving money to be prepared for an expensive retirement which, for now, allows her to stay in her apartment rather than residing in an assisted living facility. But it does make me wish I had better understood our healthcare system for the elderly and been more involved earlier in helping her make decisions and enroll in benefits. But GOOD retirement communities are very expensive, often charging $30,000-200,000+ entry fees (depending on what level of care you need when you enter and what amenities you wish your residence to have) plus additional monthly charges until you die for full spectrum of life communities. None of that is covered by medicare or health insurance.

I think this is an important lesson for all WCI readers looking to retire early as well as those with aging parents. You MUST plan for (or at least consider) extremely high healthcare/long term care costs and strongly weigh the benefits of long term care insurance. My biggest challenges now are deciding whether or not to purchase this for my wife and I and which company to use if we do. I am very concerned that, with healthcare and our government as they stand today, a company I choose now will be bankrupt by the time we need the insurance coverage or that the coverage will be so limited in scope that it will not cover the costs I am thinking we had been paying for over the years. It has led me to significantly increase my expected costs and needs in retirement to ensure that our nest egg is large enough to cover our rising healthcare needs in the future. Fortunately I will have the experience of helping manage my mother’s retirement so that I can learn from her (our*) mistakes…and the money it costs me from my own pocket to bridge any shortfall she encounters will serve as a stark reminder.

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